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Retribution Products Inc. has a pipe division that manufactures and sells a standard pipe as follows: Capacity in units 10,000 Selling price to outside
Retribution Products Inc. has a pipe division that manufactures and sells a standard pipe as follows: Capacity in units 10,000 Selling price to outside customers on the intermediate m $ 15 Variable costs per unit $ Fixed costs pe unit (based on capacity) $ 8 5 Retribution Products Inc. has a pump division that could use the pipes in the manufacturing of one of its pumps. The pump division is currently purchasing 10,000 pipes per year from a supplier for $14 per pipe. Assume that the pipe division is selling all that it can produce to outside customers. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced shipping costs. Required: a) Showing all of your work, what is the acceptable range, if any, for the transfer price between the 2 divisions (6 marks)? b) Does the acceptable range for the transfer price change if there is idle capacity? Show all your calculations (4 marks)
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